In January, Missouri Attorney General Catherine Hanaway announced her office was suing a number of drug manufacturers and pharmacy benefit managers, or PBMs, due to their role in the rising cost of insulin.
She said she remembers in the 1980s when people started talking in earnest about PBMs.
“They were like a great innovation,” Hanaway said. “They were going to drastically reduce the cost of pharmaceuticals for people.”
The idea was that drug manufacturers had too much power over drug costs. So, by introducing a middleman company that works to negotiate drug prices on behalf of lots of insurers — medication costs could be brought down.
“Unfortunately, I think they've just become part of the insurance industrial complex,” Hanaway said.
Geoffrey Joyce, a pharmaceutical and health economics researcher at the University of Southern California, said PBMs assist insurance companies by negotiating prices with drug manufacturers and helping write formularies, which are essentially the list of medications insurance will cover and how much they’ll pay.
But as time went on, more medications entered the market — many of which treat the same conditions.
“So, there wasn't one antidepressant or one cholesterol lowering drug. There were many of them,” Joyce said. “They realized, ‘We can actually negotiate. We can go to manufacturer one, two, three and four, and say, ‘You all make a similar cholesterol lowering drug. If you want to be on our preferred list, please give us a discount.’’”
"There's no reason why Americans pay 60% to 70% more for drugs than the rest of the world.
Did you know that America is the only country in the entire world that even has a middleman like a PBM? It's not needed in any other countries, the government negotiates those prices."Chelsea Ryckis, the president of Ethos Benefits, a fiduciary consulting firm
Joyce said while this seems pro-consumer, the problem is that PBMs have asked for increasingly large discounts, or rebates.
And, in response, drug manufacturers increase the list price of many medications to retain a profit.
According to a 2024 report from the U.S. Federal Trade Commission, the three largest PBMs — CVS Caremark, Express Scripts and Optum RX — now manage nearly 80% of all prescriptions filled in the United States, which means they influence what medications are covered for millions of Americans.
This arrangement gives the companies a lot of bargaining power, Joyce said.
But due to limited regulation and a lack of transparency, which is often written into contracts, those savings PBMs negotiate aren’t necessarily passed through to the insurance companies and consumers.
“They've created a business model, and I think the estimates are in aggregate [that] the industry profits are about $30 billion now,” Joyce said. “Again, they have to make some money. They do provide a service. It's that lack of transparency, in the sense of — we know you're retaining too much of the savings.”
Joyce said PBMs also pit drug manufacturers against each other — often prioritizing drugs from companies that give them the biggest discounts and excluding other similar medications from insurance company formularies.
And when a medication is excluded for a formulary, individual consumers may end up paying the list price at the pharmacy.
"They play an important role in managing our drug benefits ... Their role as a group purchasing organization is valuable.
It's their lack of transparency and their lack of fiduciary responsibility that has led them to create this system that benefits them more than patients. And again, they're for profit companies, we shouldn't be surprised, right?"Geoffrey Joyce, department chair of pharmaceutical and health economics at the University of Southern California
Joyce said this raises concerns of medication decisions being made or influenced by which drug manufacturer gave the PBM the largest rebate, not which medication a doctor thinks would be best for their patients.
David Whitrap, the vice president of communications at CVS Health — one of the largest PBMs in the country — said they work with an external group of experts to determine which drugs are necessary.
Ultimately, he said, the decision of what to include on a formulary and how much of the drug cost to cover is made by the insurance company.
“It's the individual employers that look at all of the options we put in front of them. They make the decision based on their budget,” Whitrap said. “We have clients that are in very tough situations with their budgets, and they have to make some hard decisions.”
Whitrap didn’t shy away from the fact that there are parts of the PBM negotiation process that are private and inaccessible, such as the negotiated drugs prices with individual drug manufactures.
But, he said this allows the PBM to more effectively negotiate and secure lower prices.
Last year, they were able to “deliver $45 billion in savings” to their clients, and Whitrap said a major part of that was leveraging competition between drug manufacturers.
So, he worries about some of the proposed legislation around PBMs.
“If we had a drug list or a drug price you know that we posted on our website … that would ultimately encourage the drug companies in these competitive classes to tacitly collude with one another and never give us a lower price other than what we were publishing,” Whitrap said. “That would actually end up being bad for the American consumer and the American employer.”
The move toward greater regulation and oversight
In the last several years, there has been more legislation and litigation at both the state and federal level introduced to tamp down on PBMs and increase transparency.
At the state level, many laws have been passed regarding PBMs. Some require PBMs to register or become licensed within a state, others establish reimbursement requirements, and a few even require a PBM to have a fiduciary duty — a legal and ethical obligation — to insurers.
Missouri has proposed several new laws this session, Senate Bill 968, Senate Bill 984 and House Bill 1975 that would impact the way PBMs interact with pharmacies and allow for greater state oversight.
Federally, 2026 has been a busy year so far. On February 3, President Donald Trump signed the Consolidated Appropriations Act, 2026.
This new law, in part, mandates 100% pass through of rebates to insurance plans and requires increased transparency with employer health plans by way of regular reporting on net drug spend and rebates.
"There's good policy and bad policy ... We are 100% in support of anything that pushes towards greater transparency, greater simplicity for the member, greater consumer affordability.
We want all of that. Some of the policies do that. Some do not. Some policies or would actually increase costs."David Whitrap, the vice president of communications at CVS Health.
Then on February 4, the Federal Trade Commission announced a major settlement with Express Scripts — one of the largest PBMs in the country.
According to the announcement, the settlement requires Express Scripts to “adopt fundamental changes to its business practices that increase transparency.”
The settlement includes agreements that Express Scripts will discontinue practices such as preferring host cost versions of medications on standard formularies, increase overall transparency and move its group purchasing organization Ascent from Switzerland back to the United States.
“It's a start,” said Chelsea Ryckis, the president of Ethos Benefits, a fiduciary consulting firm that works with employers to design health plans. “The entire healthcare supply chain is at fault, right? Every part of it has a misaligned incentive of some kind that needs to be addressed. So no, it's not just PBMs, but this will serve as a great example.”
She said her company works based on flat fees instead of commissions — and is an example of how some are trying to create alternatives to the traditional insurance and pharmaceutical markets.
Another example is investor Mark Cuban’s Cost Plus Drugs, which is a direct-to-consumer pharmacy that is designed to reduce prescription drug costs by removing PBMs from the equation.
Ryckis said while she’s hopeful about these changes to the industry and new PBM legislation, she worries that if regulation is introduced in a piecemeal fashion — PBMs will simply develop new ways to work around it.
And USC’s Geoffrey Joyce agreed.
“These guys have evolved over time. Their profit streams have evolved,” Joyce said. “You squeeze the balloon in one area, and they find other ways.”
